January 9, 1998
MEMORANDUM FOR:
SEE DISTRIBUTION LIST
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FROM:
JOHN J. GETEK
Assistant Inspector General
For Audit
SUBJECT:
Special Reports Relating to the Federal Employees' Compensation
Act Special Benefit Fund - FY 1997
Attached is a special report on the Federal Employees' Compensation Act (FECA) Special Benefit Fund (the Fund) that our office prepared to assist in the audit of your agency's annual financial statements. The U.S. Department of Labor, Employment Standards Administration, Office of Workers' Compensation administers the Fund and the DOL Office of Inspector General is responsible for auditing the Fund.
This special report consists of two reports. The first report is an opinion on the total actuarial liability as of September 30, 1997, and the total benefit payments made by the Fund on behalf of the employing agencies for the year then ended. The second report is an agreed-upon procedures (AUP) report on the schedule of actuarial liability and benefit payments by Agency. This special report was prepared by Carmichael, Brasher, Tuvell & Savage, under contract with the Office of Inspector General.
The sufficiency of the procedures referred to in the agreed-upon procedures report is solely the responsibility of the users of this report. Consequently, we nor the firm make no representations regarding the sufficiency of the procedures. Because the agreed-upon procedures performed did not constitute an audit, the auditor did not express an opinion on any elements, accounts or items as they pertained to the agreed-upon procedures report. Further, the firm has no obligation to perform any procedures beyond those listed in the attached report.
In accordance with Statement on Auditing Standards No 1, the Office of Inspector General affirms that it has satisfactorily:
3. Obtained a representation letter from Carmichael, Brasher, Tuvell & Savage that they are independent in accordance with the requirements of the American Institute of Certified Public Accountants.
4. Confirmed with Carmichael, Brasher, Tuvell & Savage that they are aware that the schedules on which they have applied certain agreed-upon procedures may be included in the financial statements on which your principal auditor will report and that their report may be relied upon by your principal auditor.
5. Confirmed with Carmichael, Brasher, Tuvell & Savage that they are familiar with and have all current texts of accounting principles generally accepted in the United States, generally accepted auditing standards promulgated by the American Institute of Certified Public Accountants, Statements of Federal Financial Accounting Concepts and Standards, OMB Form and Content Bulletins, and Government Auditing Standards, and have prepared this special report in accordance therewith.
6. Confirmed with Carmichael, Brasher, Tuvell & Savage that all assigned staff and subcontractors are in current compliance with the Government Auditing Standards requirements for continuing professional education.
If you have any comments or suggestions on the contents or sufficiency
of this report or the procedures performed that you would like considered
for future audits, please send your comments via regular mail, facsimile,
or e-mail to:
Attachment
II. Background 4
III. Objectives and Scope of Work 7
IV. Independent
Auditors' Report on the Schedule of Actuarial Liability
and Benefit Payments
12
V. Schedule of Actuarial Liability & Benefit Payments 14
VI. Independent Accountants' Report on Applying Agreed-Upon Procedures 19
VII. Schedule of Actuarial Liability & Benefit Payments by Agency 22
VIII. Overview
of the Special Benefit Fund
25
Basis of Presentation
26
Overview of the Control Environment
27
Overview of the Flow of Transactions
29
X. Agreed-upon
Procedures and Results
46
Summary of Procedures
and Results
47
EDP General Controls and Security
50
Actuarial Liability
62
Analytical Review of Benefit
Payments
75
Compensation and Medical
Benefit Payments
82
Case Creation and Initial Eligibility
82
File Maintenance
86
Continuing Eligibility
88
Accuracy of Compensation Payments
91
Schedule Awards
94
Death Benefits
95
Medical Bill Payment Processing
96
Third Party Settlements
101
XI. Results of Statistical Sampling Tests 104
XII. Results of Non-Statistical Tests 109
ADP Automatic Data Processing
AID Agency for International Development
ARC Actuarial Resources Corporation
ASP Automated Support Package
BPS Bill Payment System
CBS Chargeback System
CDSI Computer Data System, Inc.
CE Claims Examiner
CFO Chief Financial Officer
CFR Code of Federal Regulations
CMF Case Management File System
COLA Cost of Living Adjustment
COP Continuation of Pay
CPI Consumer Price Index
CSRS Civil Service Retirement System
DASM Division of Application Systems Management
DCE Designated Claims Examiner
DD District Director
DFEC Division of Federal Employees' Compensation
DFM Division of Financial Management
DMA District Medical Advisor
DMD District Medical Director
DMS Debt Management System
DO District Offices
DOL Department of Labor
DOLAR$ Department of Labor Accounting and Related Systems
DOT Department of Transportation
DPPS Division of Planning, Policy and Standards
EA Employing Agency
EDP Electronic Data Processing
EPA Environmental Protection Agency
ESA Employment Standards Administration
FASAB Financial Accounting Standards Advisory Board
FCS Fund Control System
FECA Federal Employees' Compensation Act
FECSBF Federal Employees' Compensation Special Benefit Fund
FEMA Federal Emergency Management Agency
FFMIA Federal Financial Management Improvement Act of 1996
FMFIA Federal Managers' Financial Integrity Act
FWC
Future Workers' Compensation
HBI Health Benefit Insurance
HCFA Health Care Financing Administration
HHS Department of Health and Human Services
HUD Department of Housing and Urban Development
IBNR Incurred But Not Reported
JFMIP Joint Financial Management Improvement Project
LAN Local Area Network
LWEC Loss of Wage Earning Capacity
LWOP Leave Without Pay
MMA Medical Management Assistant
MMI Maximum Medical Improvement
NASA National Aeronautical and Space Administration
NRC Nuclear Regulatory Commission
NSF National Science Foundation
OA Office of Audit
OCFO Office of Chief Financial Officer
OIG Office of Inspector General
OLI Optional Life Insurance
OMAP Office of Management and Planning
OMB Office of Management and Budget
OPAC On-line Payment and Collection
OPM Office of Personnel Management
OWCP Office of Workers' Compensation Program
PCIE President's Council on Integrity and Efficiency
PPS Probability Proportionate to Size
QCM Quality Case Management
RS Rehabilitation Specialist
SBA Small Business Administration
SFFAS Statement of Federal Financial Accounting Standards
SOL Office of the Solicitor
SSA Social Security Administration
U.S.C.
United States Code
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The Federal Employees' Compensation Act Special Benefit Fund, was established by the Federal Employees' Compensation Act to provide income and medical cost protection worldwide for job-related injuries, diseases, or deaths of civilian employees of the Federal Government and certain other designated groups. The U. S. Department of Labor, Employment Standards Administration (ESA), Office of Workers' Compensation (OWCP), has the responsibility to provide actuarial liability and benefit payment data to the 24 Chief Financial Officers (CFO) Act agencies in regard to the Federal Employees' Compensation Act (FECA) future workers' compensation benefits.
This special report includes benefit payment and related actuarial liabilities by Federal agency for informational purposes and to assist the 24 CFO Act and other specified agencies in the preparation of their respective financial statements. The following summarizes what we did, what the report contains and the report results. The Executive Summary should not be used in lieu of the entire report, which enumerates all agreed-upon procedures and results. The sufficiency of the agreed-upon procedures and the evaluation of the results are solely the responsibility of the users of this report.
What We Did and What the Report Contains
Our procedures were performed in accordance with standards established by the American Institute of Certified Public Accountants and Government Auditing Standards, issued by the Comptroller General of the United States. In accordance with these standards, we rendered the following:
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Overview
The Federal Employees' Compensation Act Special Benefit Fund was established by the Federal Employees' Compensation Act to provide income and medical cost protection worldwide for job-related injuries, diseases, or deaths of civilian employees of the Federal Government and certain other designated groups. The U.S. Department of Labor, Employment Standards Administration (ESA) is charged with the responsibility of operation and accounting control of the Special Benefit Fund under the provisions of the FECA. Within ESA, the Office of Workers' Compensation Program (OWCP), Division of Federal Employees' Compensation (DFEC) administers the FECA program.
In 1908, Congress passed legislation providing workers' compensation to Federal workers whose jobs were considered hazardous. Due to the limited scope of this legislation, FECA was passed in 1916, extending workers' compensation benefits to most civilian Federal workers. FECA provided benefits for personal injuries or death occurring in the performance of duty.
DFEC provides wage replacement (compensation) benefits and payment for medical services to covered Federal civilian employees injured on the job, employees who have incurred a work-related occupational disease, and the beneficiaries of employees whose death is attributable to a job-related injury or occupational disease. Not all benefits are paid by the program, since the first 45 days from the date of the traumatic injury are usually covered by keeping injured workers in pay status with their employing agencies. DFEC also provides rehabilitation for injured employees to facilitate their return to work.
Chargeback System
FECA is required to furnish to each agency and other covered group, before August 15th of each year, a statement showing the total cost of benefits and other payment made during the period July 1 through June 30. FECA established the chargeback system to furnish these statements.
The chargeback system creates bills which are sent to each employing agency for benefits that have been paid on the agency's behalf. The bills are for a fiscal year inclusive of benefits paid from July 1 through June 30. Each agency is required to include in its annual budget estimates for the fiscal year beginning in the next calendar year a request for an appropriation for the amount of these benefits. These agencies are then required to deposit in the Treasury, the amount appropriated for these benefits to the credit of the Fund within 30 days after the appropriation is available.
If an agency is not dependent on an annual appropriation, then the funds
are required to be remitted during the first fifteen days of October following
the issuance of the bill.
The bills sent to agencies for chargeback system contain identifying codes that indicate both the year being billed and the year in which the bill is to be paid. Each bill sent out in fiscal year 1997 and due in fiscal year 1999 would be coded as follows: 97-XXX-99. The 97 indicates the year the bill is generated, the XXX indicates the numerical sequence of the bill, and the 99 would indicate the year that the bill would be due and paid.
Operational Offices
FECA is operated in 12 District offices (DO) and national headquarters located in Washington, D.C. The 12 District offices are:
District 1 Boston District 11 Kansas City
District 2 New York District 12 Denver
District 3 Philadelphia District 13 San Francisco
District 6 Jacksonville District 14 Seattle
District 9 Cleveland District 16 Dallas
District 10 Chicago
District 25/50 Washington, D.C.
(Includes National)
The objectives of this special report are:
Scope of Work
Independent Audit on the Schedule of Actuarial Liability and Benefit Payments (Section V)
Our audit consisted of a financial and compliance audit of the actuarial liability and total benefit payments paid by DFEC, from the Special Benefit Fund and charged back to the employing agencies of the injured workers. Our audit was conducted in accordance with Government Auditing Standards, issued by the Comptroller General of the United States; and generally accepted auditing standards. The primary objective of the audit was to determine that the Schedule of Actuarial Liability and Benefit Payments presented fairly, in all material respects, the actuarial liability of the FECA Special Benefit Fund and the benefit payments made during the fiscal year from the fund, in conformity with the accounting policies specified by OMB Bulletin 94-01, Form & Content of Agency Financial Statements.
Agreed-Upon Procedures on the Schedule of Actuarial Liability and
Benefit Payments by Agency
(Section VII)
Our agreed-upon procedures consisted of applying the procedures detailed in Section X of this report. The tests performed were designed to determine if DFEC had determined the actuarial liability based upon verifiable data and statistics in accordance with the model's stated assumptions and whether the benefit payments for compensation for lost wages and medical benefits were paid for eligible injured workers at the correct amounts. We reviewed the methods and procedures utilized in the preparation of the Schedule of Actuarial Liability and Benefit Payments by Agency to determine if the methods and procedures were adequately documented and would result in accurate reporting.
We engaged a certified actuary to review the model which FECA utilizes
to calculate the actuarial liability. We also engaged an EDP specialist
to review FECA's electronic data processing system. We considered the professional
qualifications of the actuary and the EDP specialist and obtained an understanding
of the nature of the work performed by both the actuary and the EDP specialist.
These procedures are detailed in Section X of this special report.
The second phase of the sampling methodology involved computing the sample size to achieve the desired confidence level of 90 percent. Several criteria were considered in determining the sample size. First, the prior audit history was used to determine the average error and project that average error to the current year's sample selection methodology. Secondly, additional coverage was considered relevant for this special report in the area of chargeback testing. After consideration of the criteria, a sample size of 551 was determined. The sample was then selected using a random number generator.
Our detailed testing was performed at the following district offices
with the following number of items tested:
Items
District Office Number of Statistical Number of Non-Statistical
New York 55 94
Philadelphia 43 33
Jacksonville 122 454
Cleveland 42 81
Kansas City 37 110
Denver 37 56
San Francisco 111 265
Washington, D.C. 104 213
Total 551 1,306
Our testing at the district offices consisted of control and substantive tests in the following categories:
We performed analytical procedures for the period from June 1, 1997 through September 30, 1997. These analytical procedures were designed to ensure that the benefit payments made for the last 4 months of the year were not significantly different than the benefit payments made during the period from which our sample was selected or significantly different than the same period in prior years. Furthermore, we reviewed FECA's program memoranda, bulletins and directives issued subsequent to May 31, 1997, to determine procedural changes and the effect on controls, if any.
Our procedures were performed in accordance with standards established
by the American Institute of Certified Public Accountants and Government
Auditing Standards, issued by the Comptroller General of the United
States. The field work was performed during the period from July 15, 1997
through October 31, 1997, at eight district offices and from May 20, 1997
through January 6, 1998, at the Washington D.C. national office.
Bernard E. Anderson, Assistant Secretary
Employment Standards Administration, U.S. Department of Labor,
General Accounting Office, Office of Management and Budget and other
Agencies:
We have audited the accompanying Schedule of Actuarial Liability and Benefit Payments (Section V) of the Federal Employees' Compensation Act Special Benefit Fund as of and for the year ended September 30, 1997. This schedule is the responsibility of the Department of Labor's management. Our responsibility is to express an opinion on this schedule based on our audit.
As required by OMB Bulletin 94-01, Form and Content of Agency Financial Statements, Note 1 to the Schedule describes the accounting policies used by the Fund to prepare the Schedule, which is a comprehensive basis of accounting other than generally accepted accounting principles.
We conducted our audit in accordance with generally accepted auditing standards, and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Schedule of Actuarial Liability and Benefit Payments is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Schedule of Actuarial Liability and Benefit Payments. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall schedule presentation. We believe our audit provides a reasonable basis for our opinion.
In our opinion, the Schedule of Actuarial Liability and Benefit Payments (Section V) referred to above presents fairly, in all material respects, the actuarial liability and benefit payments of the Federal Employees' Compensation Act Special Benefit Fund as of and for the year ended September 30, 1997, in conformity with the accounting policies described in Note 1.
This report is intended solely for the U.S. Department of Labor, General
Accounting Office, Office of Management and Budget and those Federal agencies
listed in Section VII of this report. However, this report is a matter
of public record and its distribution is not limited.
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Carmichael, Brasher, Tuvell & Savage
January 6, 1998
Benefit Payments
$1,887,187
1. SIGNIFICANT ACCOUNTING POLICIES
The actuarial liability and benefit payments of the Special Benefit Fund have been considered specified accounts for the purpose of this special report and have been reported thereon. ESA is responsible for providing annual data to the 24 CFO Act and other specified agencies. FECA's annual data is defined as the actuarial liability of the Special Benefit Fund. This annual data is necessary for the 24 CFO Act and other specified agencies to support and prepare their respective financial statements.
Benefit payments are intended to provide income and medical cost protection
to covered Federal civilian employees injured on the job, employees who
have incurred a work-related occupational disease and beneficiaries of
employees whose death is attributable to job-related injury or occupational
disease. The actuarial liability is computed from the benefits paid history.
The benefits paid and interest rate assumptions are applied to the actuarial
model which calculates the liability estimate.
Statement of Federal Financial Accounting Standards (SFFAS) Number 5, Section 138, Accounting for Liabilities of the Federal Government, requires that a contingent liability be recognized when three conditions are met. First, a past event or exchange transaction has occurred. Second, a future outflow or other sacrifice of resources is probable. Finally, the future outflow or sacrifice of resources is measurable.
The actuarial liability reported on the schedule includes the expected liability for death, disability, medical and miscellaneous costs for approved cases. The liability is determined using a method that utilizes historical benefit payment patterns related to a specific incurred period to predict the ultimate payments related to that period. Consistent with past practice, these projected annual benefit payments have been discounted to present value using the Office of Management and Budget's, June 10, 1997 economic assumptions for 10-year Treasury notes and bonds. Interest rate assumptions utilized for discounting in 1997 were as follows:
6.24% in year 1,
5.45% in year 4,
5.82% in year 2, 5.
40% in year 5,
5.60% in year 3,
and thereafter
In fiscal year 1997, the future workers' compensation (FWC) actuarial model was revised to include some additional features that would provide a more reasonable estimate of the FECA FWC liability. A wage inflation factor (cost of living adjustments or COLA) and medical inflation factor (consumer price index medical or CPIm) were added and applied to the calculation of projected future benefit payments. Historical factors were used to adjust the model's historical payment streams to current year constant dollars. From this constant year data, retention rates were developed and applied to current year actual payments along with the future COLA's and CPIm's.
FY COLA CPIm FY COLA CPIm
1986 0.0% 7.3% 1994 2.2% 4.9%
1987 3.0% 7.0% 1995 0.0% 4.7%
1988 2.0% 6.3% 1996 2.5% 3.8%
1989 4.1% 7.2% 1997 3.3% 3.1%
1990 3.6% 8.8% 1998 2.4% 4.0%
1991 4.1% 9.1% 1999 2.6% 4.1%
1992 4.2% 7.7% 2000+ 2.5% 4.1%
1993 3.7% 6.3%
Also incorporated into the model was the adoption of a discounting formula to recognize the timing of actual compensation payments. In the past, the model assumed one payment a year was made. The new formula recognizes the payment stream as thirteen payments spread over one year. Additionally, the number of projected years used by the model for present value calculations has been extended from 23 years to 37 years. These changes were treated prospectively.
The changes in the assumptions to the model, as described above, increased the estimated actuarial liability by approximately 11 percent. This increase was partially offset by a constant dollar decrease in benefit payments.
Bernard E. Anderson, Assistant Secretary
Employment Standards Administration, U.S. Department of Labor,
General Accounting Office, Office of Management and Budget and other
Agencies:
We have performed the procedures described in Section X, which were agreed to by the U.S. Department of Labor, General Accounting Office, Office of Management and Budget, the 24 CFO Act and other specified agencies listed in Section VII (the specified users) of this special report, solely to assist you and such agencies with respect to the accompanying Schedule of Actuarial Liability and Benefit Payments by Agency (Section VII) of the Federal Employees' Compensation Act Special Benefit Fund as of and for the year ended September 30, 1997.
The Schedule (Section VII) was provided by the Department of Labor. The schedule of actuarial liability at September 30, 1997, represents the present value of the estimated future benefits to be paid pursuant to the Federal Employees' Compensation Act. The schedule of benefit payments expended during the fiscal year ended September 30, 1997, reflects expenditures made for injuries which occurred prior to September 30, 1997, which were approved for payment.
This engagement to apply agreed-upon procedures was performed in accordance with standards established by the American Institute of Certified Public Accountants and Government Auditing Standards, issued by the Comptroller General of the United States.
An actuary and an EDP specialist were engaged to perform certain procedures relating to the actuarial liability and EDP system, respectively, as described in Section X.
Procedures used to test compliance with certain laws and regulations and certain aspects of the internal control structure and the results of those procedures are enumerated in Section X. We express no opinion on the Federal Employees' Compensation Act Special Benefit Fund's compliance with laws and regulations, internal controls over financial reporting, or any part thereof.
The basis of accounting used in the preparation of the Schedule of Actuarial Liability and Benefit Payments by Agency is an other comprehensive basis of accounting as described in Note 1 (Page 16).
The sufficiency of the procedures is solely the responsibility of the
specified users of this report. Consequently, we make no representation
regarding the sufficiency of the procedures described in Section X either
for the purpose for which this report has been requested or for any other
purpose. Our agreed upon procedures and results are presented in Section
X of this report.
We were not engaged to, and did not perform an audit, the objective of which would be the expression of an opinion on the specified elements of the Schedule of Actuarial Liability and Benefit Payments by Agency. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you.
This report is intended solely for the U.S. Department of Labor, General
Accounting Office, Office of Management and Budget and those Federal agencies
listed in Section VII of this report and should not be used by those who
have not agreed to the procedures and taken responsibility for the sufficiency
of the procedures for their purposes thereof. However, this report is a
matter of public record and its distribution is not limited.
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Carmichael, Brasher, Tuvell, & Savage
January 6, 1998
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AGENCY |
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| Agency for International Development |
$38,741
|
$2,988
|
| Environmental Protection Agency |
$17,332
|
$2,709
|
| Federal Emergency Management Agency |
$6,038
|
$1,753
|
| General Services Administration |
$183,667
|
$16,218
|
| National Aeronautical and Space Administration |
$56,891
|
$7,152
|
| National Science Foundation |
$805
|
$120
|
| Nuclear Regulatory Commission |
$9,029
|
$747
|
| Office of Personnel Management |
$7,070
|
$1,185
|
| Postal Service |
$4,959,618
|
$554,606
|
| Small Business Administration |
$17,125
|
$2,294
|
| Social Security Administration |
$195,095
|
$17,107
|
| Tennessee Valley Authority |
$653,365
|
$56,575
|
| U. S. Department of Agriculture |
$623,140
|
$58,502
|
| U.S. Department of the Air Force |
$1,240,718
|
$117,891
|
| U.S. Department of the Army |
$1,610,945
|
$159,258
|
| U. S. Department of Commerce |
$116,560
|
$10,904
|
| U. S. Department of Defense - other |
$693,852
|
$61,677
|
| U. S. Department of Education |
$5,003
|
$1,528
|
| U. S. Department of Energy |
$59,643
|
$8,368
|
| U. S. Department of Health and Human Services |
$180,589
|
$20,357
|
| U. S. Department of Housing and Urban Development |
$57,127
|
$7,431
|
| U. S. Department of the Interior |
$446,611
|
$45,304
|
| U. S. Department of Justice |
$628,698
|
$63,877
|
| U. S. Department of Labor 1 |
$650,463
|
$60,472
|
| U.S. Department of the Navy |
$2,636,526
|
$245,016
|
| U. S. Department of State |
$43,620
|
$4,715
|
| U. S. Department of Transportation |
$1,140,383
|
$90,572
|
| U. S. Department of the Treasury |
$775,516
|
$72,736
|
| U. S. Department of Veterans Affairs |
$1,431,279
|
$136,302
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| Other agencies 2 |
$316,063
|
$58,823
|
| Total - all agencies (Memo Only) |
$18,801,512
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$1,887,187
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1 Includes $448,021 (in thousands) in actuarial liability and $41,510 (in thousands) in benefit payments not chargeable to other agencies.
2 Agencies not specifically listed are not separately reported because ESA is unable to estimate the actuarial liability.
BASIS OF PRESENTATION
The Schedule (Section VII) has been prepared to report the actuarial liability and benefit payments by agency of the Federal Employees' Compensation Act Special Benefit Fund. The Schedule has been prepared from the accounting records of the Special Benefit Fund.
The actuarial liability by agency includes the expected liability for death, disability, medical and miscellaneous costs for approved cases. The liability is determined using a method that utilizes historical benefit payment patterns related to a specific incurred period to predict the ultimate payments related to that period. Consistent with past practice, these projected annual benefit payments have been discounted to present value using the Office of Management and Budget's, June 10, 1997 economic assumptions for 10-year Treasury notes and bonds. Interest rate assumptions utilized for discounting in 1997 were as follows:
6.24% in year 1, 5.45% in year 4,
5.82% in year 2, 5.40% in year 5,
5.60% in year 3, and thereafter
In fiscal year 1997, the future workers' compensation (FWC) actuarial model was revised to include some additional features that would provide a more accurate estimation of the FECA FWC liability. A wage inflation factor (cost of living adjustments or COLA) and medical inflation factor (consumer price index medical or CPIm) were added and applied to the calculation of projected future medical payments. Historical factors were used to adjust the model's historical payment streams to current year constant dollars. From this constant year data, retention rates were developed and applied to current year actual payments along with the future COLAs and CPIms. The compensation COLAs and the CPIm used in the model's calculation of estimates were as follows:
FY COLA CPIm FY COLA CPIm
1986 0.0% 7.3% 1994 2.2% 4.9%
1987 3.0% 7.0% 1995 0.0% 4.7%
1988 2.0% 6.3% 1996 2.5% 3.8%
1989 4.1% 7.2% 1997 3.3% 3.1%
1990 3.6% 8.8% 1998 2.4% 4.0%
1991 4.1% 9.1% 1999 2.6% 4.1%
1992 4.2% 7.7% 2000+ 2.5% 4.1%
1993 3.7% 6.3%
Benefit payments by agency consist of gross compensation and medical
benefits paid under the Federal Employees' Compensation Act for the period
from October 1, 1996 through September 30, 1997. Benefit payments are intended
to provide income and medical cost protection to covered Federal civilian
employees injured on the job, employees who have incurred a work-related
occupational disease and beneficiaries of employees whose death is attributable
to job-related injury or occupational disease.
OVERVIEW OF THE CONTROL ENVIRONMENT
Organization and Management
The Office of Workers' Compensation Programs (OWCP) is one of four agencies within ESA. The Division of Federal Employees' Compensation (DFEC) is one of four divisions within OWCP.
DFEC has five branches:
1. Branch of Policies, Regulations and Procedures
A Branch chief reports directly to the Deputy Director. The Director
and Deputy Director coordinate the operations of the 12 district offices.
District Offices
A District Director (DD) oversees the daily operations at each of the 12 district offices. The DD in each office is primarily assisted by an Assistant Director who oversees the claims section and a Fiscal Officer who oversees the Accounting Management Section.
The district offices serve the persons residing within their district. When an individual moves from one district to another, the individual's case file and responsibility for monitoring the case is transferred to the district office where the individual has moved.
The specific functions within the district offices are:
1. Claims Functions.
Identification and Registration of the Recipient of FECA Benefits
Authorized recipients of FECA benefits are those individuals who meet all of five eligibility criteria. An injured worker submits claim information which is processed at each district office using the Case Management File System (CMF).
The CMF uses a standard identification number of nine characters to identify each case file. This number is called the case number. All recipients of FECA benefits must have a unique case number recorded in the CMF, some individuals could have multiple case numbers if the individual has sustained more than one injury.
The CMF maintains an automated file with identification on all recipients paid through FECA. These records contain data elements that identify the claimant, the mailing and/or location address for the claimant, and additional information used to calculate the payment amounts and the reasons for payments.
Types of Benefit Payments
FECA claimants are entitled to compensation for injury and lost wages, and compensation for payment of medical bills. The payments for injuries and lost wages are processed through the Automated Compensation Payment System (ACPS), while the payments for medical bills are processed through the Bill Payment System (BPS). Each of these systems support the Department of Labor's general ledger system (DOLAR$) via an automated interface.
The primary function of ACPS is to process the payment of weekly, monthly, and supplemental (lump sum) benefits to claimants. The ACPS interfaces with the CMF to ensure that approved claims are supported by a valid case number. Payment data is accumulated by the district offices and transmitted to the national office every night. The mainframe computer, maintained by Sungard Computer Services, Inc. (Sungard), runs automated calculations to compute the payment schedule and transmits the schedule back to the district offices. If the district does not resubmit the claim through the system, the payment is approved via negative confirmation and will be coded for payment.
Approved payments are stored in a temporary file for the duration of
the appropriate compensation payment cycle: Daily Roll (5 days), Death
Benefits (28 days), or Disability (28 days). At the end of the cycle, the
mainframe runs automated programs to format the data to Treasury specifications,
to update the compensation payment history files for use in the chargeback
system, and to send summarized information to the district office Fund
Control System. The specially formatted Treasury information is sent to
Treasury via an overnight courier for payment processing.
Computer-Generated Reports
BPS generates a summary report, generated on a weekly basis, that is a history of bill payments. This report can be utilized for investigative purposes as well as for confirming whether a particular bill has been paid.
The ACPS generates a summary report on a daily basis which is a history of compensation payments. This report can be utilized for investigative purposes as well as for confirming whether a particular claim has been paid. The mainframe transmits updated ACPS History Files to the district offices where they are available for query purposes for 6 months. The mainframe retains the history files for query purposes for 2 years before they are archived.
Actuarial Liability
The FECA actuarial liability is prepared utilizing a separate model which is not integrated with DOL's general ledger accounting and reporting system. The FECA actuarial liability is prepared on an annual basis as of September 30, 1997.
Within ESA, the Division of Financial Management (DFM) has been designated
as the responsible agency to generate the annual FECA actuarial calculations.
The Division of Planning, Policy and Standards (DPPS) has the direct responsibility
for preparing the actuarial liability and the initial review of the detailed
calculations. DPPS also has the responsibility of investigating and revising
the initial model calculations as deemed appropriate.
The model utilizes the basic theory that future benefit payment patterns will reflect historic payment patterns. Under this approach, a projection can be made into future years based on historical payments. This selected approach is commonly referred to as the "paid loss extrapolation method." This method was chosen for its simplicity, availability of payment data, cost savings and reliability.
This model has the following negative aspects:
The dimensional separation for each historic year by agency serves as the basis on which each agency's actuarial liability is calculated. The chargeback tapes (historic basis) are maintained by the FECA Program, which supplies the historic data to DPPS annually.
The most significant assumption which is manually added to the model
is the interest rate by which the future payment streams are to be discounted.
The DPPS obtains the discount rates from the OMB semiannual economic assumptions.
The DPPS has historically utilized the 10-year U. S. Treasury Note as the
appropriate interest rate for each of the future year projections in the
model. This rate was chosen over short-term rates since this long-term
rate is less volatile.
Once the FECA model has been prepared at year end, the DPPS will review each agency's calculations in comparison to the entire model liability trend. Individual agency calculations are reviewed in detail to determine whether the trend increase/decrease seems unusual in relation to the other agencies. If deemed appropriate, the factors for a specific agency are revised up or down if the payment patterns indicate that the model calculation is inappropriate. This manual revision of agency factors typically occurs with smaller agencies since the calculations of the FECA liability is sensitive to fluctuations in benefit payments.
Third Party Settlements
An injury or death for which compensation is payable to a FECA claimant which is caused under circumstances creating a legal liability on a person or persons other than the United States (a third party) to pay damages will result in the case being classified as a third party case. Status codes are used to track the progress of third party cases in the Case Management File System (CMF). OWCP usually requires the claimant to pursue legal action; however, the United States can pursue action on its own by requiring the beneficiary to assign rights of action to the United States.
When the claims examiner (CE) receives a reply to Letter CA-1045 (or does not receive a reply 30 days after the second request is sent to the claimant) or obtains the name and address of the attorney representing the claimant with respect to the potential third party liability, the case is referred to a designated claims examiner (DCE). A case may be closed as "minor" and not pursued if the claimant has an injury where the total medical bills, compensation and time lost from work do not exceed or are expected not to exceed $1,000. Additionally, a case may only be closed as "minor" if the claimant has not responded to Letter CA-1045, or has responded but is not personally asserting a third party claim and has not retained an attorney.
The DCE refers the case to the appropriate Office of the Solicitor (SOL) in the following instances:
When a settlement is reached in a third party case, the DCE prepares Form CA-164 and forwards it to the fiscal section. If an amount owed from the claimant is received by OWCP, the amount is credited against the ACPS and BPS, as appropriate. By recording the amount in the ACPS and BPS, the proper employing agency is credited back with the amounts recovered from third party settlements.
If the full amount owed from the claimant is not received by OWCP, an
accounts receivable balance is set up for the amount still due from the
claimant. If the amount recovered by the claimant from the third party
exceeds the amount already paid by OWCP to the claimant for compensation
and medical benefits, then the excess amount is recorded and tracked in
the case file to prohibit any additional benefits from being paid to the
claimant until the amount of eligible benefits to the claimant exceeds
the excess amount.
This section of the report describes the sampling methodology used to determine the compensation and medical benefit payments to be tested and the follow-up non-statistical testing we performed based on the results of our risk assessments and our prior year's sampling results.
Our sampling plan did not include all of the 12 FECA district offices for testing purposes. Therefore, a two-stage sampling methodology was applied whereby we selected a sufficient number of district offices and benefit payments to achieve a sample which was representative of the population of FECA benefit payments. Eight district offices and 551 sample items were selected to achieve this objective. The test was performed at interim and covered the period from October 1, 1996 to May 31, 1997.
This section of the report will describe the sampling methodology in the following manner:
A cutoff date of May 31, 1997, was used for sampling purposes so that we could perform our sampling procedures in a timely manner. For the period from June 1, 1997 through September 30, 1997, we performed certain analytical procedures (as detailed in Section X of this special report) that assured us of the validity of payments through September 30, 1997.
The populations for Compensation payments and Medical payments were treated as two separate populations. However, when the sample results were evaluated, each population was treated separately and then combined using weighted averages and respective variances for each as required by stratified sampling. The population of compensation payments was identified as cases on which compensation was paid during the eight month period from October 1, 1996 through May 31, 1997. The population for medical benefits was defined as each medical payments (check) paid during the same eight month period.
The FECA population for the eight month period consisted of the following:
The total universe of FECA benefits was separated into two initial strata: compensation payments and medical payments. The two strata were further stratified into the 16 strata as detailed in Table B at the end of this section of this report. The reason for the stratification was as follows:
1. Benefit Payments were stratified into two strata, compensation payments and medical payments. These two separate stratus represent homogeneous transactions.
2. By having 16 strata with each strata representing homogeneous transactions, the variance within the population could be minimized, allowing a reduction of the sample size and still achieve the desired Confidence Level and a reasonable standard error.
3. To identify large dollar transactions.
4. Strata 16 represents the cases in which the injury occurred during the current fiscal year. This allowed us to test initial eligibility on new cases.
Determining the Strata Range of the FECA Payment Population
The strata range was developed to ensure that the variance within the population would be as small as possible, to allow for all significant items to be placed within their own strata and to provide the significant items with a higher percentage of dollar coverage.
We defined a significant item for FECA as any transaction with a value of $100,000 or more. Strata 15 had all cases with a value of $20,000 or more. This strata had a population of 11,550 items and a dollar value of $335 million. These large dollar items represented 26 percent of the total dollar population. In addition, transactions over $100,000 were subjected to additional analytical and other relevant substantive procedures. The strata ranges are detailed in Table A at the end of this section of this report.
Completeness of the FECA Population
The completeness of the population was determined by reconciling the population as reflected in the general ledger to the total payments per the FECA payment database and the disbursements as reported by the U.S. Treasury.
The FECA Sampling Unit
The sampling unit for compensation benefits was the cases under which
benefits were paid (the total benefits paid to each case selected was tested
for substantive purposes). The sampling unit for medical bill payments
was the individual check. Both universes are presented in Table B at the
end of this section of this report.
Solely for the purpose of determining our statistical sample, the basis for planning materiality was determined from a blend of total assets and total expenditures. Assets, net of actuarial reserve credits, for FECA were approximately $4.0 billion and total expenditures were $2.1 billion. To allow for a proper level of testing, planning materiality was calculated at $24 million, tolerable misstatement was calculated at $18 million and ordinarily a significant item would be calculated at $6 million (1/3 of 75 percent of $24 million). However, since no one item within FECA would ever approximate $6 million, we defined a significant item as $100,000.
SELECTION OF SAMPLE
Using the FECA population described above, a dual purpose sample was selected. The sample was comprised of 261 compensation benefit payments items and 290 medical bill payment items to perform the substantive test of details for FECA benefit payments. From this sample, 290 items were tested for internal controls over initial and continuing eligibility, file maintenance, compensation payments and medical payments. All 551 sample items were tested for the chargeback system.
Selection of FECA District Offices (Stage 1)
All 12 of the district offices were not included as test sites. In our sampling plan, a two-stage sampling methodology, without replacement, was applied. The first stage involved the selection of the districts to be audited. The second stage involved selection of the benefit payment transactions within each district using stratification and difference estimation.
The following eight districts were selected without replacement using
Probability Proportionate to Size (PPS) sampling:
| District Office |
|
| Philadelphia |
|
| Jacksonville |
|
| Cleveland |
|
| Denver |
|
| San Francisco |
|
| Washington, D.C. |
|
| New York |
|
| Kansas City |
|
| Total |
|
Based on prior history (fiscal year 1995 and 1996 testing), we determined the potential errors and the potential variance.
Sample Size
In planning the sample for substantive tests, the following were considered:
1. Relationship of the sample to the relevant objective.
2. Preliminary judgments about materiality.
3. Auditor's allowable risk of incorrect acceptance.
4. Characteristics of the population and applicable variance.
The two-stage sampling approach, without replacement, was designed to project the FECA benefits payments which were not properly paid and recorded in accordance with FECA policies and procedures. The sampling plan was designed to achieve a 90 percent confidence level with a desired sampling precision of plus or minus 30 percent (or less) of the point estimate. These parameters, in conjunction with the stratification process described above, produced a sample size of 551 items. Prior audits have shown that the point estimate plus or minus the standard error have been within the materiality levels established for the audit.
THE OBJECTIVES OF THE TEST
The objectives of the test were:
1. Sampling tests of controls over the FECA benefit payments system. The samples included testing over case creation and initial eligibility, file maintenance, continuing eligibility, compensation payments, medical payments and the chargeback system.
2. Sampling substantive test of details for the FECA benefit payments.
TEST OF CONTROLS
The FECA Sampling Unit for Testing Controls
Control testing for the FECA benefit payment system was comprised of testing controls for case creation and initial eligibility, file maintenance, continuing eligibility, compensation payments, medical payments and the chargeback system. The internal control sample of 290 items was comprised of the following type of benefit payments:
Control testing for file maintenance was comprised of testing controls for 75 individuals who received benefits from the program in strata 3 through 16.
Control testing for continuing eligibility was comprised of testing controls for 66 individuals who entered the program prior to October 1, 1996, selected in either compensation or medical payment sample described above.
Control testing for medical bill payments was comprised of testing controls for the approximately 1,325,000 medical bill payments made during the period. A sample of 114 items were for medical bill payments.
Control testing for the Chargeback system comprised of testing controls for all individuals selected in either the compensation or medical sample described above.
The Sampling Assumptions for Testing Controls
Expected Deviation Rate (1) - Internal controls evaluated in prior years for medical and compensation payments and for the chargeback system resulted in deviations; however, the FECA benefit payment system was rated as LOW risk.
For control testing, we used the following ranges of control risk:
1. Low Risk Projected Deviations of 0.0% to 7.0%
2. Moderate Risk Projected Deviations of 7.1% to 12.0%
3. High Risk Projected Deviations of 12.1% & Higher
Since prior year's testing of internal controls resulted in LOW risk (less than a seven percent deviation rate), we set a deviation rate (error rate) of one percent for control testing for the FECA benefit payments (medical and compensation benefit payments) as well as the chargeback to agencies. However, while we believed that the expected deviation rate would approximate one percent, we used an expected deviation rate of four percent in designing our sample. This conservative approach provided us with a more than adequate sample size to evaluate the internal controls over the FECA benefit payments.
The Risk of Assessing Control Risk Too Low(3)- To minimize sampling risk and to achieve an acceptable level of sampling risk, we used a five percent Allowable Risk of Assessing Control Risk Too Low. This is the risk that the auditor will assign, based on the sample results, an assessed level of control risk which is less than the true operating effectiveness of the control structure policy or procedure.
The Sampling Assumptions for Testing the Chargeback System
The objective of this test was to perform attribute testing to determine if the Chargeback System (CBS) was operating as intended by management and would detect errors on a timely basis. Using attribute sampling, we determined the deviation percentage for incorrect charges to agencies. This test calculated the overall deviation rate. Based on fiscal year 1996 testing of this system, we anticipated that the expected deviation rate would approximate one percent and set the tolerable rate at seven percent. However, because of the critical nature of this system, we subjected all 551 sample items rather than the required 120 sample to test the internal control attributes applicable to the chargeback code. Since the sample tested was greater than the required 120 sample items, the actual confidence level achieved was approximately 99 percent for the Chargeback testing.
While projecting attribute results to the agency level was not within our scope, we stratified the total sample of 551 items into three groups based on the size of the agency in order to determine the actual coverage provided, as follows:
% of
Sample
Agency Group
Universe
%
5 Largest Agencies 60% 62%
Middle 9 Agencies 35% 32%
Smallest 32 Agencies 5% 6%
Sample Size (Internal Control)
Using a tolerable rate of seven percent, an expected deviation rate
of four percent, and a confidence level of 95 percent (one-sided) for the
upper range only, we determined the sample size to be 290. This sample
was sufficient to justify a low assessed level of control risk as required
by OMB Circular 93-06.
3 Normally, either 5% or 10% is used to
minimize the risk that the calculated assessed level of control risk determined
by the sample results is less than the true operating effectiveness of
the control structure policy or procedure.
Internal Control Sample - Definition of an Error or Deviation
An error for control testing was any deviation from the prescribed internal control structure policy and procedure. Different attributes were developed based on the type of payment.
Case creation and initial or continuing eligibility - Attributes were developed to test the initial eligibility for those individuals who entered the program during the period October 1, 1996 through May 31, 1997. Attributes were developed to test the continuing eligibility for those individuals who were in the program prior to October 1, 1996. All attributes were designed to test the control techniques adopted by management to provide reasonable assurance that errors or irregularities in either the creation of cases or the initial or continuing eligibility determination would be detected on a timely basis.
File maintenance - Attributes were developed to test the file maintenance for those 75 individuals who received benefits from the program in strata 3 through 16. All attributes were designed to test control techniques adopted by management to provide reasonable assurance that the errors or irregularities in the maintenance of the ACPS records would be detected on a timely basis.
Compensation payments - Attributes were developed to address each type of benefit payment. If the sample item represented a death benefit, there were 34 attributes; if the sample item was a schedule award, there were 30 attributes; and if the sample item was a regular benefit payment, there were 36 attributes. All attributes were designed to test the control techniques adopted by management to provide reasonable assurance that errors or irregularities in compensation payments would be detected on a timely basis.
Medical payments - A total of 45 attributes were developed to test the control techniques adopted by management to provide reasonable assurance that errors or irregularities would be detected on a timely basis. All attributes were designed to test the control techniques adopted by management to provide reasonable assurance that errors or irregularities in medical bill payments would be detected on a timely basis.
Chargeback - An error for control testing of the CBS was any payment which received the incorrect Chargeback code based on information found on Form CA-1 or Form CA-2 completed by the employing agency. All attributes were designed to test the control techniques adopted by management to provide reasonable assurance that errors or irregularities in the charging of an employing agency would be detected on a timely basis.
Evaluation of Sample Results
Using the attributes described in Section X of this report, the results of the internal control sample permitted us to assess the internal controls over case creation and initial eligibility, file maintenance, continuing eligibility, compensation payments, medical payments and the CBS.
Test of Details Sample - Definition of an Error or Deviation
An error for substantive tests of details (compensation and medical
payments) was any payment not properly recorded for the correct amount
in accordance with FECA accounting policies and procedures. The book value
of the individual sampling unit was reviewed to ensure that the payment
was properly recorded.
NON-STATISTICAL TESTS SELECTION
Based on the risk assessment and our prior year's sampling results, we prepared several reports from the FECA database to expand our tests within selected areas. The reports were prepared from the FECA database for the period October 1, 1996 to May 31, 1997. These reports included all claimants from the eight district offices that we tested (not nationwide).
The following reports were prepared and additional procedures were performed in regard to each of these areas:
Duplicate Payments
Reports were prepared which compared certain elements of each medical bill payment with all other medical bill payments to identify potential duplicate payments. We considered the items on this report to be potential duplicate payments. The reports included a comparison of payments made both within the current year and payments made in the current year which might also be a duplicate of a payment made in the prior year. We reviewed all items indicated on the reports which represented a potential duplicate payment of more than $500. Our review of these reports resulted in 945 items to be tested.
Multiple Claim Payments
Reports were prepared which compared certain elements of each compensation
payment made during the period from October 1, 1996 through May 31, 1997.
The report compared social security numbers for which more than one case
file existed. This situation occurs when an employee has suffered more
than one injury. We analyzed the payments to ensure that a claimant was
not receiving excessive compensation. Our review of these reports resulted
in 262 multiple claim compensation payment items to be tested.
A report was obtained from the FECA national office which listed all cases on which the amount of compensation to be paid was manually overridden from what the ACPS calculated the payment should be. We selected instances where the amount paid as a result of the override was more than the amount that the ACPS had calculated should be paid. Our review of this report resulted in eight gross override compensation payment items to be tested.
High Dollar Payments
A report was prepared which detailed all claimants who received compensation in excess of $100,000 from October 1, 1996 through May 31, 1997. We also prepared a report which detailed all medical providers who were paid in excess of $100,000 in a single payment during the period from October 1, 1996 through May 31, 1997. Our review of this report resulted in 45 high dollar compensation payments and 13 high dollar medical bill payments to be tested.
Third Party Settlements
A report was prepared which detailed all claimants that had a third
party status indicator in the CMF. We then selected one type of each third
party status indicator from each of the eight district offices in which
detailed testwork was to be performed. Our review of this report resulted
in 33 third party settlement cases to be tested.
STRATA Lower Upper
1 Less than 0
2 Equals 0
3 $0.01 $50.00
4 $50.01 $100.00
5 $100.01 $150.00
6 $150.01 $200.00
7 $200.01 $500.00
8 $500.01 $750.00
9 $750.01 $1,667.00
10 $1,667.01 $3,334.00
11 $3,334.01 $5,000.00
12 $5,000.01 $10,000.00
13 $10,000.01 $15,000.00
14 $15,000.01 $20,000.00
15 over $20,000
16
New FY 97 cases
| Strata | COMPENSATION | MEDICAL | TOTAL | |||
| Items | Amount | Items | Amount | Items | Amount | |
| 1 | 361 | ($876,502) | 13,967 | ($11,203,813) | 14,328 | ($12,080,315) |
| 2 | 3,774 | 0 | 0 | 0 | 3,774 | 0 |
| 3 | 282 | 8,402 | 363,584 | 11,444,108 | 363,866 | 11,452,510 |
| 4 | 319 | 23,918 | 368,362 | 27,234,909 | 368,681 | 27,258,827 |
| 5 | 275 | 33,611 | 199,214 | 24,682,925 | 199,489 | 24,716,536 |
| 6 | 223 | 38,903 | 104,544 | 18,233,877 | 104,767 | 18,272,780 |
| 7 | 1,165 | 396,877 | 174,573 | 53,601,745 | 175,738 | 53,998,622 |
| 8 | 838 | 522,564 | 44,373 | 27,400,838 | 45,211 | 27,923,402 |
| 9 | 2,990 | 3,598,414 | 35,247 | 37,151,250 | 38,237 | 40,749,664 |
| 10 | 5,023 | 12,322,607 | 11,414 | 26,524,739 | 16,437 | 38,847,346 |
| 11 | 4,216 | 17,543,110 | 3,793 | 15,367,447 | 8,009 | 32,910,557 |
| 12 | 13,835 | 105,666,370 | 3,494 | 23,965,446 | 17,329 | 129,631,816 |
| 13 | 17,691 | 220,936,951 | 931 | 11,303,443 | 18,622 | 232,240,394 |
| 14 | 16,919 | 294,326,063 | 408 | 7,057,419 | 17,327 | 301,383,482 |
| 15 | 10,902 | 312,189,022 | 648 | 23,477,266 | 11,550 | 335,666,288 |
| 16 | 3,010 | 13,141,245 | 0 | 0 | 3,010 | 13,141,245 |
| Total | 81,823 | $979,871,555 | 1,324,552 | $296,241,599 | 1,406,375 | $1,276,113,154 |
Our objective was to perform specified agreed-upon procedures to the Schedule of Actuarial Liability and Benefit Payments By Agency as of and for the year ended September 30, 1997, as summarized below:
Each area within this section of the report is organized as follows:
1. Overview of results.
2. A description of the policies and procedures.
3. A detailed listing of the tests (agreed-upon procedures) performed for this engagement.
4. Results of tests
(agreed-upon procedures), both statistical and non-statistical results.
Electronic Data Processing General Controls and Security
Description of Policies and Procedures
The accounting/computer system used by the Federal Employee's Compensation Special Benefit Fund (FECSBF) maintains all of the data for each of the claimants applying for FECA benefits. The Automated Support Package (ASP) is the electronic data processing system for the FECSBF. This computer system is comprised of the following five subsystems:
Access to the ASP is limited to only certain employees, and their degree of access is based upon the user's function within the program. The FECA EDP security officer is responsible for assigning passwords and other procedures required to permit access to the ASP at the National Office; District Systems Managers are responsible for assigning passwords and other procedures required to permit access to the ASP at the district office level. Controls to restrict access to ASP to authorized personnel include the following (national and district office level):
The System Administrator is responsible for overseeing all the data processing activity performed at the National Office level. DFEC employs about 17 individuals within the branch of ADP Coordination and Control and has contracts with outside computer consulting firms, Computer Data System, Inc. (CDSI) and Viatech through which approximately 30 individuals work with DFEC. CDSI provides technical support to the Division of Application Systems Management (DASM), including application system development and maintenance of software. Viatech provides network and computer hardware maintenance. DFEC also has contracted with approximately 30 EDP contract personnel.
At each district office, a System Manager is responsible for overseeing all the data processing activity performed at the district level (including user access). The System Managers are under the supervision of DASM. DASM includes both Federal Government employees and outside contractors. The System Managers have access to system data for report generation and submission purposes. The System Managers can only extract information from the database and cannot change any of the source codes (i.e., programs).
The function of DASM is to maintain computer networks, operating systems,
and computer hardware systems. DASM installs all of the data processing
applications and modifications developed by DFEC.
There are formal operator and user manuals for some components of the system. There are extensive input edit checks in the software. Errors are automatically rejected by the system and queued for review by the appropriate individuals. Reports that track the errors, including aging information, are routinely produced.
The Office of Information Systems within the Office of the Chief Financial Officer contracted with Sungard Computer Services, Inc. (Sungard) for computer mainframe time-sharing services. Sungard provides computer hardware and a communications network between the national office, the district offices and the U. S. Treasury. In addition, Sungard maintains a tape library and disk drive backup. Sungard does not run any programs or software applications for FECA. The Sungard database includes all medical and disability compensation payment information since 1978.
Documentation
Hardware: DASM maintains an extensive list of the hardware used in the ASP processing, at all sites.
Software: DASM maintains an extensive list of the third party software used in the ASP processing. This includes operating system software, compilers and utilities. All the hardware and software modifications are controlled by DOL. OWCP requests the modifications, DFEC designs and tests the modifications, and DASM installs and maintains the modifications.
Acceptance testing is performed by DOL using an environment that closely copies the development environment. The procedures used for the acceptance testing varies according to subsystem. No formal documentation of the acceptance testing is maintained. However, DFEC maintains a history of all prior source code versions which provides evidence of all modifications of the source code.
The System Administrator has an assistant responsible for computer design development, programming and analysis. Another assistant of the System Administrator is responsible for evaluating the testing of all new and modified source codes (programming) and the distribution to the district offices. Additionally, this assistant supervises all staff programmers.
Anti-Virus Control
The ASP currently runs a variety of anti-virus or virus checking routines.
Each file server runs Intel Lan Protect 1.52 as a Network Loadable Module
resident on the server. The local area networks (LAN's) are "diskless"
LAN's. When disks are scanned (e.g., for the installation of new software),
McAfee Virus Scan 2.1.5 is used to scan disks to identify and remove viruses.
Personal computers (PC's) attached to LANs in OWCP district offices utilize
hard drives in addition to the central file server. All of the PC's utilize
DOS 6.0 which contains the Microsoft Anti-Virus utility and can be run
in a scheduled or unscheduled ad hoc mode.
Engaged an EDP specialist to assist us in reviewing the FECSBF's EDP system and considered the following to evaluate the professional qualifications of the specialist:
Purpose of the system
Associated systems that interact or contribute to the system
Contracts that were involved with the system
| Purpose of the system | Output methods of the system, the use of the output and the personnel who used the output |
| Objectives of the system and flow of data through the system | Contracts that were involved with the system |
| Organization of the system | Operating system employed and the involvement operators had with the system |
| Development of the system | Physical security of the system |
| Associated systems that interact or contribute to the system | Logical system security, including security software and system access |
| Location of the system | Processing safeguards of the system |
| Hardware of the system | Problems found in prior years |
| Software of the system | System control tests of the system |
| Data files of the system | Input methods of the system and the personnel who prepared the input |
| Communication procedures of the system |
Description of Policies and Procedures
The Statement of Federal Financial Accounting Standards Number 5, Section 138, Accounting for Liabilities of the Federal Government, requires that a contingent liability be recognized when three conditions are met. First, a past event or exchange transaction has occurred. Second, a future outflow or other sacrifice of resources is probable. Finally, the future outflow or sacrifice of resources is measurable. For the purpose of calculating the actuarial liability, the Financial Accounting Standards Advisory Board stipulates that this occurs once a program participant is determined eligible for compensation, that is, a claim is approved. By definition, incurred but not reported claims (IBNR) do not qualify for inclusion in the FECA model (as reflected in Appendix B - Liability Recognition and Measurement Matrix of SFFAS 5). Therefore, the model represents the estimated present value of future payments based upon approved claims.
Tests of Actuarial Liability
The rates used for both changes cited above are as follows:
1986 0.0% 7.3%
1987 3.0% 7.0%
1988 2.0% 6.3%
1989 4.1% 7.2%
1990 3.6% 8.8%
1991 4.1% 9.1%
1992 4.2% 7.7%
1993 3.7% 6.3%
1994 2.2% 4.9%
1995 0.0% 4.7%
1996 2.5% 3.8%
1997 3.3% 3.1%
1998 2.4% 4.0%
1999 2.6% 4.1%
2000+ 2.5% 4.1%
6.21% in year 1, 6.24% in year 1,
and declining to 5.10% and declining to 5.40%
by the year 2002. by the year 2003.
The current year's rates were derived from OMB's Mid-session Review as cited above using the 10-year Treasury borrowing rate. The prior years' model used the OMB published Economic Assumptions for Year-End Review10-Year Treasury borrowing rate. We traced these rates to the publications cited without exception.
We noted that the actuary established that the change in interest rates resulted in a decline in the actuarial liability of approximately 1-2 percent depending on which other changes were considered as the base point. As such, the interest rate increase also mitigated the effect of the change in duration and inclusion of inflation factors.
The content of the reports received did not directly address issues pertaining to the method of estimating the FECA actuarial liability. As summarized later in this special report, these external reports cited that benefit payments could be reduced through such methods as return-to-work programs, review of files, unbundling of payment records, and legislative changes.The FECA actuarial model is driven by benefit payments. As such, to the extent that benefit payments are overpaid or otherwise incorrect, the estimate would be misstated. However, when overpayments are identified, the correction is recorded in the current year chargeback data as a negative chargeback. Therefore, the model does give effect to such corrections, but not until the year in which the overpayment is identified.
Changes in benefit payments from year to year are immediately reflected in the model which multiplies the prior year payments by the retention rates to arrive at the projected payments. Changes in benefit payments also affect the retention rates, but more gradually, as the history of the change in payments is calculated into the average of the change in payments.
We compared, without exception, the benefit payments input to the FECA model by agency and in aggregate as evidenced by the agency summary report to the benefit payments reported by the fiscal year 1997 summary chargeback report. The benefit payment amounts used by the model were based upon a June 30, 1997, year end.
Lump sum payments are retroactively allocated to the years beginning with the injury date through the current year. We tested DOL's assertion that the difference was a result of eliminating the portion of the lump sum payments allocated to payment years besides fiscal year ended June 30, 1997, without exception.We considered the reasonableness of DOL's exclusion of such payments. We noted that retention rates and the calculation of the liability according to the model was derived from a history of claims experience specific to the age of a claim. If payments incurred in prior years but paid in the current year were considered as part of the current year's claim experience, it would distort the cost behavior of such claims to be skewed further into the life of the claim than is actually the case. So, for the purpose of calculating the retention rates, we found such reallocation necessary.
The model is driven significantly by the current year's payments. It assumes that those payments will continue and decline ratably in accordance with the retention rates. The lump sum payments, to the extent they are allocated to prior years, will not continue and ratably decline as the periodic payments do. They will decline at a much greater rate than the retention rates anticipate. If they were included as 1997 payments, the retention rates as calculated would result in an overstatement of projected payments. Therefore, we concluded the exclusion of the lump sum payments from the runoffs to be reasonable.
Because the change in assumptions were so pervasive, we altered our approach to the analysis to give effect to such changes. Beginning with the prior year agency balance, we added an allowance for the assumption changes consistent with the aggregate change (11.05 percent), and then added or subtracted an allowance for the change in benefit payments. The allowance for the change in benefit payments was premised upon a ratio calculated from the 1996 liability divided by the 1996 benefit payments ($9.51). We multiplied this ratio by the change in payments by agency expressed in constant dollars. We compared our calculation of what the 1997 balance would be premised upon the procedures used to calculate the liability as calculated by the FECA model. We were able to predict the reported balance within 10 percent on 18 of the 29 agencies. These agencies included the Agency for International Development (AID), the Environmental Protection Agency (EPA), the General Services Administration (GSA), the Postal Service, the Social Security Administration (SSA), the Tennessee Valley Authority (TVA), and the U.S. Departments of the Air Force, Agriculture, Army, Commerce, Defense, Interior, Justice, Labor, Navy, State, Treasury, Veterans Affairs. Essentially, the liability relating to these agencies changed in accordance with the change in the aggregate liability.
We noted that the remaining agencies were generally those with smaller balances, together comprising less than 10 percent of the total liability as reported. We made inquiries pertaining to the size of the agencies' claims population. The actuary indicated that the credibility of historical extrapolation models generally increased with the size of the population.
The following agencies had liabilities which increased in a fashion disproportionate to the model as a whole: the Federal Emergency Management Agency (FEMA), the Nuclear Regulatory Commission (NRC), and the Department of Transportation (DOT).We noted that both NRC and FEMA were small agencies with respect to the model and number of claims filed. As such, their history of claims may not have sufficient weight to smooth annual fluctuations. Furthermore, we noted that NRC and FEMA's 1997 payments exceeded the 1996 estimate of 1997's payments by 18 percent and 54 percent, respectively. NRC's and FEMA's actual to estimated payments ran counter to that of the model as a whole. For instance, in aggregate, the 1996 estimate of the 1997 payments was within 3 percent of the actual paid.
The following agencies had liabilities which decreased disproportionately to the model as a whole: U.S. Departments of Education, Energy, Health and Human Services (HHS) Housing and Urban Development (HUD), the National Aeronautical and Space Administration (NASA), the National Science Foundation (NSF), the Small Business Administration (SBA) and the Office of Personnel Management (OPM). We noted the following with respect to these agencies:
HUD and HHS had been subjected to smoothing procedures in prior years. The purpose of the smoothing procedures was to maintain consistency from year-to-year in the reported amounts of these liabilities. As a result, the reported amount of the liabilities was higher than the amount generated by the mainframe model. Because DOL considered the model as amended more reliable than the results produced in previous years, the smoothing procedures were not reiterated. As such, the analytical procedures we proposed for these agencies did not compare mainframe generated balances for 1996 and 1997. Last year's mainframe amounts would explain the behavior of the liability for both agencies within ten percent. DOL believes that the current year calculation is reliable. We noted that the prior year mainframe model did predict the 1997 payments within acceptable parameters.
The balance of the agencies had atypical years regarding the injury mix of benefit payments. All had proportionately less 1997-injury payments than the model as a whole. For instance, NSF had functionally no benefit payments made pertaining to new 1997 claims ($15.00 for medical). OPM had no compensation claims and only $3,100 in medical claims pertaining to 1997 injuries. Education had no new compensation claims.
As a group, these agencies had approximately one-third the proportion of 1997 claims that the model in the aggregate had. Because the retention rates are greatest for new claims, the impact of such a downward spike in current year claims is weighted more heavily throughout the model. Therefore, in relation to the overall effect on the model, the benefit payments expended by these agencies were "cheap" dollars; that is, they inflated the liability less than if the claims were paid in proportion to the injury mix of the model overall. The analytical procedures, as applied, did not give effect to such skewing, averaging the sensitivity of the model over all injury years. Education's lump sum payments were proportionately 90.4 percent higher than the model as a whole which means more of their payments were excluded from the runoff. Our analytical procedures did not consider the amount of lump sum payments.DOL stated that these agencies' liabilities, according to their analytical procedures, performed in accordance with the other agencies. In support, DOL calculated the mean percentage change by agency for all agencies and noted that the percentage change was below that mean for the three questioned agencies. DOL's calculation indicated that all agencies' liabilities averaged 28.6 percent. DOL's calculated percentages for 17.59 percent for Transportation, 2.22 percent for Energy, and 21.12 percent for Education. DOL concluded that the percentage change for the three agencies should not be considered abnormal since they were less than the mean percentage change of 28.6 percent for all agencies.
We recalculated the mean percentage change of the actuarial liability by agency using the method employed by DOL and noted that they calculated the mean change using 1997 values prior to the ad hoc adjustments (explained below), and excluding the non-chargeable portion of the model. DOL also aggregated the percentage changes of certain entities who were segregated for the purposes of this report. A recalculation of the mean percentage change using DOL's methods resulted in a mean percentage change of approximately 15 percent. Our recalculation using DOL's methods resulted in the variances of the three questioned agencies falling within the mean percentage change for all agencies.
OWCP's labor economist reviews the amounts generated by the model and overrides certain system-generated retention rates to stabilize the results of its calculations by agency from year-to-year. OWCP terms such overrides as "ad hoc" adjustments.
The following were the general parameters used by the model for retention rates:1. For injuries older than 5 years (incurred 1992 and prior): lower of actual agency, aggregate agency, or 0.97.
2. For injuries 5 years old and less (incurred 1993-1997): actual experience. If agency had no experience, a default to aggregate agency was used.
We obtained a list of ad hoc adjustments made by OWCP. Agencies affected included SSA, SBA, OPM, EPA, Education, FEMA, and DOL. We performed calculations of the impact of such ad hoc adjustments.
The aggregate liability was reduced approximately 2 percent through the ad hoc adjustments. Nearly all the change was the result of ad hoc adjustments to SSA. The impact on the following agencies was calculated at below 10 percent of the FECA liability by agency and further procedures were not performed: SBA, Education, and DOL.
We performed additional procedures as follows on the ad hoc adjustments made to SSA, OPM, EPA, and FEMA:
|
Agency |
1997 Payments
Predicted by 1996 Model |
1997 Agency Summary Actual As Reduced |
Difference in Dollars |
Difference in Percent |
| Agency for International Development | $2,042,662 | $2,900,272 | $857,610 | 41.98% |
| Department of the Air Force | $109,275,850 | $109,946,511 | $670,661 | 0.61% |
| Department of the Interior | $44,227,360 | $42,900,732 | ($1,326,628) | -3.00% |
| Department of Education | $1,330,987 | $1,373,663 | $42,676 | 3.21% |
| Department of the Navy | $236,806,222 | $234,630,271 | ($2,175,951) | -0.92% |
| Department of Labor | $17,979,502 | $17,689,643 | ($289,859) | -1.61% |
| Department of Defense - Other | $59,640,321 | $57,902,569 | ($1,737,752) | -2.91% |
| Department of Commerce | $11,215,067 | $10,193,961 | ($1,021,106) | -9.10% |
| Department of Agriculture | $55,584,125 | $56,366,118 | $781,993 | 1.41% |
| Department of the Army | $150,585,081 | $150,549,222 | ($35,859) | -0.02% |
| Department of Transportation | $85,540,937 | $87,668,376 | $2,127,439 | 2.49% |
| Department of Treasury | $70,534,406 | $66,975,346 | ($3,559,060) | -5.05% |
| Department of Justice | $56,463,916 | $57,556,301 | $1,092,385 | 1.93% |
| Department of Energy | $7,647,075 | $7,976,479 | $329,404 | 4.31% |
| Department of Housing & Urban Development | $7,076,788 | $7,144,246 | $67,458 | 0.95% |
| Department of Veterans Affairs | $135,500,192 | $128,976,044 | ($6,524,148) | -4.81% |
| Environmental Protection Agency | $2,342,069 | $2,342,093 | $24 | 0.00% |
| Federal Emergency Mgmt. Agency | $988,378 | $1,524,069 | $535,691 | 54.20% |
| General Services Administration | $15,935,684 | $15,575,967 | ($359,717) | -2.26% |
| Health and Human Services | $19,325,631 | $19,720,922 | $395,291 | 2.05% |
| National Aeronautical and Space Administration | $6,798,374 | $6,698,624 | ($99,750) | -1.47% |
| National Science Foundation | $120,157 | $115,196 | ($4,961) | -4.13% |
| Nuclear Regulatory Commission | $615,017 | $727,833 | $112,816 | 18.34% |
| Office of Personnel Management | $1,048,409 | $1,129,831 | $81,422 | 7.77% |
| Other Establishments | $43,893,846 | $41,392,658 | ($2,501,188) | -5.70% |
| Postal Service | $536,450,000 | $505,697,615 | ($30,752,385) | -5.73% |
| Small Business Administration | $2,014,874 | $2,263,142 | $248,268 | 12.32% |
| Social Security Administration | $32,690,574 | $16,041,251 | ($16,649,323) | -50.93% |
| State Department | $4,109,888 | $4,367,809 | $257,921 | 6.28% |
| Tennessee Valley Authority | $53,762,363 | $54,763,291 | $1,000,928 | 1.86% |
| TOTAL | $1,771,545,755 | $1,713,110,055 | ($58,435,700) | -3.29% |
We noted that SFFAS#5, Accounting for Liabilities of the Federal Government (Appendix B - Liability Recognition and Measurement Matrix) excludes IBNR from the FECA liability requirement and premises expense recognition upon the occurrence of a relevant event and determination of eligibility.
Billable benefit payments for the following agencies fell within 10 percent of the predicted amount on all but the following agencies: SSA, SBA, NRC, AID and FEMA.
We previously discussed the SSA liability, noting that its retention rates had not yet normalized. We noted that last year and this year, actual payments were significantly less than the runoff predicted for SSA. This indicates the possibility that the SSA liability is overstated. However, we noted that the two agencies whose liability most approximates SSA's, GSA and HHS, both had actual payments which approximated those of SSA.
We noted that SBA, NRC, AID, and FEMA had payments in excess of the
estimated amount. However, this pattern was not a reoccurrence of the prior
year. Given the lack of data points for these agencies, we can not conclude
that the liability was understated.
Description of Policies and Procedures
Authorized recipients of FECA benefits are those individuals who meet all of five eligibility criteria. An injured worker submits claim information which is processed at each district office using the Case Management File System (CMF).
The CMF uses a standard identification number of nine characters to identify recipients. This number is called the case number. All recipients of FECA benefits must have a unique case number recorded in the CMF.
The CMF maintains an automated file with identification on all recipients paid through FECA. These records contain data elements that identify the claimant, the mailing and/or location address for the claimant, and additional information used to calculate the payment amounts and the reasons for payments.
Types of Benefit Payments
FECA claimants are entitled to compensation for injury and lost wages,
and compensation for payment of medical bills. The payments for injuries
and lost wages are processed through the ACPS, while the payments for medical
bills are processed through the BPS. Each of these systems support the
Department of Labor's general ledger system (DOLAR$) via an automated interface.
Approved payments are stored in a temporary file for the duration of the appropriate compensation payment cycle: Daily Roll (5 days), Death Benefits (28 days), or Disability (28 days). At the end of the cycle, the mainframe runs automated programs to format the data to Treasury specifications, to update the compensation payment history files for use in the chargeback system, and to send summarized information to the district office Fund Control System. The specially formatted Treasury information is sent to Treasury via an overnight courier for payment processing.
The primary function of the BPS is to process payments to medical service providers. The national office has the responsibility of compiling the BPS data on a nightly basis as it is transmitted from each district office. The mainframe will run a zip code check and a comparison check of the amount to be paid to fee schedules in each geographical area. If the amount is in excess of the geographical fee schedule, the system will limit the payment to the maximum amount in the fee range. A billing in which certain fields are the same is identified by the system as a potential duplicate payment, excluded from payment and sent to a bill resolver at the district office to determine if a duplicate payment exists. Approved payments are stored in a temporary file for the duration of the bill payment cycle of 5 days. At the end of the cycle, the mainframe runs programs that format the data to Treasury specifications, updates the bill payment history files for use in the chargeback system, and sends summarized information to the district office Fund Control System. The specially formatted treasury information is sent to Treasury via overnight courier for payment processing.
Chargeback System
The ACPS and BPS system history files are combined on a quarterly and annual basis to create the FECA Chargeback Report. The FECA Chargeback System (CBS) is a subsystem of DOLAR$. CBS provides methods for tracking accounts receivable - intra-governmental activity while maintaining all financial data centrally in DOLAR$. The June 30 year end FECA Chargeback Report is used to annually bill Federal Agencies for payments made on their behalf for the period from July 1 to June 30. OMAP provides quarterly benefit summaries to Federal agencies based on the FECA CBS.
The On-line Payment and Collection (OPAC) system is utilized to facilitate
the electronic billing between Federal Departments through Treasury. OPAC's
main responsibility is to process the SF-1081s. SF-1081 (Voucher and Schedule
of Withdrawals and Credits) is a form which authorizes the transfer of
expenses or income from one Federal Department's appropriation to another
for services rendered. The receivables are tracked in an internally maintained
subsidiary ledger maintained by OMAP's accountant.
Medical $ 296,285,788 $ 303,530,927 $ -7,245,139 -2.39%
Compensation
979,871,554
978,014,939
1,856,615 0.19%
Medical $ 448,496,139 $ 456,411,499 $ -7,915,360 -1.73%
Compensation 1,438,690,381 1,423,694,234 14,996,147 1.05%
No differences greater than 5 percent were noted above.
| Agency | Compensation & Medical Payments
05/31/97 |
Compensation & Medical Payments
05/31/96 |
Difference in Dollars |
Difference in Percentage |
| Federal Emergency Mgmt. Agency | $1,231,966 | $1,032,832 | $199,134 | 19% |
| National Science Foundation | $80,278 | $94,722 | ($14,444) | -15% |
| US Department of Education | $994,983 | $1,107,480 | ($112,497) | -10% |
| US Department of Justice | $43,283,200 | $40,355,749 | $2,927,451 | 7% |
| US Department of Labor | $12,584,441 | $14,033,898 | ($1,449,457) | -10% |
|
Agency |
Compensation & Medical Payments
09/30/97 |
Compensation & Medical Payments
09/30/96 |
Difference in Dollars |
Difference in Percentage |
| Agency for International Development | $2,987,834 | $2,419,211 | $568,623 | 24% |
| Environmental Protection Agency | $2,708,912 | $2,426,316 | $282,596 | 12% |
| Federal Emergency Management Agency | $1,752,713 | $1,611,351 | $141,362 | 9% |
| National Science Foundation | $120,083 | $131,221 | ($11,138) | -8% |
| Small Business Administration | $2,294,303 | $2,470,758 | ($176,455) | -7% |
| U.S. Department of Energy | $8,367,940 | $7,858,502 | $509,438 | 6% |
| U.S. Department of Justice | $63,877,339 | $60,328,549 | $3,548,790 | 6% |
| U.S. Department of Labor | $18,962,276 | $20,529,253 | ($1,566,977) | -8% |
As a result of our analysis, benefit payments by agency comparing the prior fiscal and strata year to the current fiscal and strata year appeared reasonable. However for the agencies listed above, we noted that the number of cases claimed changed proportionally to the percentage.
|
District Office |
Compensation & Medical Payments
05/31/97 |
Compensation & Medical Payments
05/31/96 |
Difference in Dollars |
Difference in Percentage |
| Philadelphia (3) |
$54,831,069
|
$60,329,662 |
($5,498,593)
|
-9% |
| Cleveland (9) |
$69,401,266
|
$59,499,076 |
$9,902,190
|
17% |
| Chicago (10) |
$36,512,956
|
$44,925,080 |
($8,412,124)
|
-19% |
|
District Office |
Compensation & Medical Payments
09/30/97 |
Compensation & Medical Payments
09/30/96 |
Difference in Dollars |
Difference in Percentage |
| Philadelphia (3) | $80,838,014 | $86,632,719 | ($5,794,705) | -7% |
| Cleveland (9) | $106,821,043 | $87,835,063 | $18,985,980 | 22% |
| Chicago (10) | $50,537,797 | $67,052,719 | ($16,514,922) | -25% |
| Seattle (14) | $84,942,035 | $90,214,755 | ($5,272,720) | -6% |
As a result of our analysis, benefit payments by district office comparing the prior fiscal and strata year to the current fiscal and strata year appeared reasonable. However, for the agencies listed above, we noted the number of cases claimed proportionately changed to the percentage within each district.
Compensation and medical benefit payments were tested in the following areas:
Case Creation and Initial Eligibility
File Maintenance
Continuing Eligibility
Accuracy of Compensation Payments
Schedule Awards
Death Benefits
Case Creation
Description of Policies and Procedures
The FECA Procedure Manual 2-401(3) and (4) contains the requirements for proper set-up of the case file and related computer systems.
The manual assigns the duties of keeping the case management file data
accurate and up-to-date to the Claims Examiner. The case management file
is set up by a Case Create Clerk and from this setup, a Form CA-800 is
generated. Form CA-800 is a case summary sheet. Accurate data in the CMF
is essential to ensure that the information used to setup the ACPS is correct.
Once the ACPS is set up for each claimant, all vital data must be updated
in both the CMF and ACPS.
The Claims Examiner should verify the accuracy of the information entered by the Case Create Clerk by comparing Form CA-1, CA-2 or CA-5s completed by the claimant to Form CA-800 that was generated by the system.
The employing agency is charged with the responsibility of providing the chargeback code on the CA-1, CA-2, or CA-5s. If the employing agency does not designate a chargeback code, the case creation clerk determines which chargeback code should be applied. Once the case file is created, a postcard is sent to the employing agency which confirms the chargeback code to which FECA will be charging benefits. The employing agency is responsible for verifying that the chargeback code being used by FECA is correct.
Tests of Case Creation
We compared case originating forms, which are Forms CA-1, CA-2 and CA-5, to the information contained in the CMF and ACPS to ensure that:
We sampled 98 statistically selected case creation items. Our procedures revealed the following specific results:
Description of Policies and Procedures
An injured worker must satisfy five basic criteria to be eligible for
compensation benefits. These
criteria are: 1) Time, 2) Civil Employee, 3) Fact of Injury, 4) Causal
Relationship, and 5) Performance of Duty.
1) Time - The FECA Procedure Manual 2-801(3) contains the requirements
for the filing of notice of injury or occupational disease. A timely notice
of injury must be filed for a claimant to be eligible for compensation
payments. The time period filing requirements are specified in 5 U.S.C.
8119. For injuries on or after September 30, 1974, written notice of injury
must be filed within 30 days after the occurrence of the injury. For injuries
occurring between December 7, 1940 and September 6, 1974, written notice
of the injury should be given within 48 hours. The FECA Procedure Manual
2-801(3) also contains the requirements for filing a compensation claim.
A timely compensation claim must be filed for a claimant to be eligible
for compensation payments.
2) Civil Employee - The FECA Procedure Manual 2-802(2) and (4) contain the requirements for determining whether an individual meets the second of the five requirements for benefits, being a civil employee. The definition of a civil employee is in 5 U.S.C. 8101(1). Basically, status as a civil employee is met when: a) the service performed for the reporting office by the individual was of a character usually performed by an employee as distinguished from an independent contractor; and b) that a contract of employment was entered into prior to the injury.
3) Fact of Injury - The FECA Procedure Manual 2-803(3)(a) contains the requirements for the "fact of injury." The fact of injury consists of two components which must be considered in conjunction with each other. First is whether the employee actually experienced the accident, untoward event or other employment factor which is alleged to have occurred; and, second is whether such accident, untoward event or employment factor caused a personal injury.
The FECA Procedure Manual 2-803(5) contains the requirements for the evidence necessary to establish the occurrence of an unwitnessed accident. In establishing the fact of injury for an unwitnessed accident, OWCP should consider the surrounding circumstances. The claims examiner must be able to visualize the accident and relate the effects of the accident to the injuries sustained by the injured worker, especially where the claimant delayed seeking medical evidence.
4) Causal Relationship - The FECA Procedure Manual 2-805(2) contains the requirements for obtaining medical evidence necessary to establish a causal relationship between the injury and employment factors. An injury or disease may be related to employment factors in any of four ways: a) Direct Causation; b) Aggravation; c) Acceleration; or d) Precipitation.
5) Performance of Duty - The FECA Procedure Manual 2-804 contains the requirements for the performance of duty criteria. The performance of duty criteria is considered after the questions of "time," "civil employee," and "fact of injury" have been established. Even though an employee may have been at their fixed place of employment at the time of injury, the injury may not have occurred in the performance of duty. The employee may, in basically five instances, have been in the performance of duty while traveling to or from work. Statutory exclusions exist under which claims for compensation should be denied due to the willful misconduct of the employee. These claims are denied even though the injured worker has met the fact of injury and performance of duty requirements.
The FECA Procedure Manual 2-807(17)(d)(2) contains the requirements for the three day waiting period which is required by 5 U.S.C. 8117. An employee is not entitled to compensation for the first three days of temporary disability, except when: a) the disability exceeds 14 days; b) the disability is followed by permanent disability; or c) claimant is undergoing medical services or vocational rehabilitation during the three day period.
We reviewed the case files to ensure that:
Statistical Results of Initial Eligibility
We tested a statistically selected sample of 98 initial eligibility and 49 three day waiting period payment items. Our procedures revealed the following results:
Description of Policies and Procedures
The FECA Procedure Manual 5-308(5) contains the requirements for updating the ACPS when corrections are necessary to the claimant's address. When a report of injury is first received, a record is created in the CMF. When a request is made for compensation for lost wages, a schedule award or for death benefits, a complete case record is then created in the ACPS. The information transferred to the ACPS for the address is the address in the CMF at the time the record is created. If the address changes, both the ACPS and the CMF must be updated with the new information.
The FECA Procedure Manual 5-308(5) contains the requirement for updating the ACPS when errors are discovered in the originally reported social security number and chargeback code. When a report of injury is first received, a record is created in the CMF. When a request is made for compensation for lost wages, a schedule award or for death benefits, a complete case record is then created in the ACPS. The information transferred to the ACPS for the social security number and chargeback code is information in the CMF at the time the record is created. If any of this information is determined to be incorrect in ACPS, the ACPS record must be deleted and input again with the new information.
Tests of File Maintenance
We reviewed documentation in the case files to ensure that:
We tested a statistically selected sample of 76 file maintenance items. Our procedures revealed the following specific results:
We tested 262 multiple claims items for which our testwork revealed the following:
Continuing Eligibility - Current Medical Evidence
Description of Policies and Procedures
The FECA Procedure Manual 2-812(6) contains the requirements for the
periodic review of medical evidence to verify continuing disability. The
frequency of the medical review required depends on the type of compensation
the claimant is receiving. Some claimants are required to submit medical
evidence annually and others every 3 years.
We reviewed the medical evidence in the case files to ensure that:
Statistical Results of Tests of Continuing Eligibility - Current Medical Evidence
We tested a statistically selected sample of 63 continuing eligibility - current medical evidence items. Our procedures revealed the following specific results:
Continuing Eligibility - Current Earnings and Dependent Information
Description of Policies and Procedures
OWCP mails each claimant a Form CA-1032 each year. The Form CA-1032 asks the claimants to verify the status of their dependents and report any and all earnings by the claimants. The information reported by the claimant on Form CA-1032 is to be reviewed by a claims examiner and the compensation rate or amount adjusted accordingly.
The FECA Procedure Manual 2-812(6) contains the requirements for the frequency with which claimants must complete Form CA-1032. The FECA Procedure Manual 2-812(10) contains the requirements for changing the ACPS system when benefit changes are indicated by the claimant on the Form CA-1032. The ACPS system must be changed to reflect the information provided by the claimant to ensure that benefits are being paid at the proper compensation rate and amount.
Tests of Continuing Eligibility - Current Earnings and Dependent Information
We reviewed documentation in the case files to ensure that:
We tested a statistically selected sample of 32 continuing eligibility - current earnings and dependent information items. Our procedures revealed the following specific results:
Continuing Eligibility - Obtaining Wage Information
Description of Policies and Procedures
The FECA Procedure Manual 2-812(9) and (10) contain the requirements for obtaining a claimant's earnings report from the SSA. Earnings are requested from the SSA on Form CA-1036 to determine whether an adjustment is needed to a claimant's compensation rates. A claimant's compensation rate can be adjusted based on the information supplied by the SSA in response to Form CA-1036.
The ACPS system must be changed to reflect the information updated by the SSA to ensure that benefits are being paid at the proper compensation rate.
Tests of Continuing Eligibility - Obtaining Wage Information
We reviewed documentation in the case files to ensure that:
We tested a statistically selected sample of 25 continuing eligibility - earnings from SSA items. Our procedures revealed the following specific results:
Description of Policies and Procedures
The FECA Procedure Manual 2-900 contains the requirements for the computation of compensation where the injury occurred after September 12, 1960. The Branch of Claims Services is responsible for the computation of compensation payments. The claims examiner is responsible for determining the several factors used in computing compensation.
The FECA Procedure Manual 2-901 contains the requirements to periodically adjust compensation payments to reflect the increase in the cost of living. CPI adjustments are automatically calculated by the ACPS.
Tests of Accuracy of Compensation Payments
We reviewed documentation in the case files to ensure that:
We tested a statistically selected sample of 261 compensation payment items. Our procedures revealed the following specific results:
We tested 262 multiple claims case payment items for which our procedures revealed the following results:
Description of Policies and Procedures
The FECA Procedure Manual 2-808(6) contains the requirements for supporting a schedule award. The file must contain competent medical evidence which: 1) shows that the impairment has reached a permanent and fixed state and indicates the date on which this occurred; 2) describes the impairment in sufficient detail for the claims examiner to visualize the character and degree of disability; and 3) gives a percentage evaluation of the impairment.
Tests of Schedule Awards
We reviewed documentation in the case files to ensure that:
Statistical Results of Tests of Schedule Awards
We tested a statistically selected sample of ten medical evidence - schedule awards items. Our procedures revealed the following specific results:
Description of Policies and Procedures
The FECA Procedure Manual 2-700(5) contains the requirements for proper and supporting documentation for the establishment of death claims and rights of the beneficiary. Some of the documents that claimants must submit are: 1) death certificates; 2) names and addresses of next of kin; 3) marriage certificates (civil certificates); 4) birth certificates for each child; 5) divorce, dissolution, or death certificates for prior marriages; and 6) itemized burial bills, receipted, if paid.
Tests of Death Benefits
We reviewed documentation in the case files to ensure that:
We tested a statistically selected sample of 5 reporting and development requirements - death benefits items. Our procedures revealed the following specific results:
Description of Policies and Procedures
The FECA Procedure Manual Part 5 provides detailed instructions for use of the BPS:
We reviewed medical bills paid to ensure that:
We reviewed the guidelines established by the Health Care Financing Administration (HCFA) and the American Medical Association (AMA) and the medical fee schedule data that was updated in the mainframe computer system from June 1, 1996 thru May 31, 1997 to ensure that:
We tested a statistically selected sample of 290 medical bill payments. Our procedures revealed the following specific results:
Non-statistical Results of Medical Bill Payment Processing
We tested 945 potential duplicate medical bill payments totaling $1,854,000
for the eight districts for the period from October 1, 1996 to May 31,
1997. We disclosed $451,432 in duplicate payments. However, these errors
were not significant enough to affect materiality. The detailed results
of our test follow:
Description of Policies and Procedures
The FECA Procedure Manual 2-1100 outlines the procedures for processing third party cases:
A report was prepared which detailed all claimants that had a third party status indicator in the CMF. We then selected one type of each third party status indicator from each of the eight district offices in which detailed testwork was to be performed. Our review of this report resulted in 33 third party settlement cases that we reviewed the documentation in the case files to ensure that:
We tested 33 third party settlement items for which our procedures revealed the following results:
|
Attribute Summary |
Universe |
Control Tests | Projected
Deviation Using a 95% One-Sided Confidence Level (Point Estimate) |
Control
|
Substantive Test |
Substantive
|
||
|
Number Tested |
Number of Deviations |
Number Tested |
Number of Deviations |
|||||
| Case Creation and Initial Eligibility | (A) 62,050 | 98 | 0 | 2% |
|
|||
| - Name Entered in CMF Correctly | 62,050 | 98 | 0 | |||||
| - Address Entered in CMF Correctly | 62,050 | 98 | 0 | |||||
| - Social Security Number Entered in CMF Correctly | 62,050 | 98 | 0 | |||||
| - Date of Birth Entered in CMF Correctly | 62,050 | 98 | 0 | |||||
| - Chargeback Code Entered in CMF Correctly | 62,050 | 98 | 0 | |||||
| - Condition of Injury Entered in CMF Correctly | 62,050 | 98 | 0 | |||||
| - Approval of Case Acceptance Documented in
Case File |
62,050 | 98 | 0 | |||||
| - Claimant Met Time Eligibility Requirements | 62,050 | 98 | 0 | |||||
| - Claimant Met Civil Employee Eligibility
Requirements |
62,050 | 98 | 0 | |||||
| - Claimant Met Fact of Injury Eligibility Requirements | 62,050 | 98 | 0 | |||||
| - Claimant Met Causal Relationship Eligibility
Requirements |
62,050 | 98 | 0 | |||||
| - Claimant Met Performance of Duty Eligibility
Requirements |
62,050 | 98 | 0 | |||||
| - Three Day Waiting Period was Correctly Determined | 3,010 | 49 | 0 | |||||
| Continuing Eligibility | (B) 60,247 | 63 | 13 | (1) 16% |
|
|||
| - Current Medical Evidence | 60,247 | 63 | 4 | |||||
| - Authorization to Obtain Earnings from SSA | 60,247 | 25 | 4 | |||||
| - Earnings from SSA After Authorization Obtained | 60,247 | 17 | 2 | |||||
| - Current Earnings and Dependent Information | 60,247 | 32 | 3 | |||||
| File Maintenance | (C) 74,685 | 76 | 3 | (2) 4% | Low | |||
| - ACPS Updated for Address Changes | 74,685 | 76 | 1 | |||||
| - ACPS Updated for Social Security Corrections | 74,685 | 76 | 0 | |||||
| - ACPS Updated for Chargeback Corrections | 74,685 | 76 | 2 | |||||
| Accuracy of Compensation Payments | (D) 77,695 | (3) 11% | Moderate | 261 | 27 | $13,450 | ||
| - Compensation Percentage Was Correct | 77,695 | 261 | 4 | 6,216 | ||||
| - Pay Rate Was Correct | 77,695 | 261 | 11 | (5,849) | ||||
| - Hours Paid Was Correct | 77,695 | 261 | 4 | 557 | ||||
| - LWOP Was Verified | 77,695 | 261 | 2 | 335 | ||||
| - Claimant Not Paid Dual Compensation | 77,695 | 261 | 3 | 13,191 | ||||
| - HBI or OLI Deducted Properly | 77,695 | 261 | 2 | $0 | ||||
| - CPI Was Properly Applied | 77,695 | 261 | 0 | 0 | ||||
| - Reimbursement of Burial Bills at Correct Amount | 8,427 | 5 | 1 | (1,000) | ||||
| - Claimant reached MMI for Schedule Award | (E) 6,444 | 10 | 0 | |||||
| - Medical Evidence for Schedule Award Obtained | 6,444 | 10 | 0 | |||||
| - Medical Evidence for Schedule Award States
Impairment Percentage |
6,444 | 10 | 0 | |||||
| - Proper Notification of Death | (F) 8,427 | 5 | 0 | |||||
| - DMA Requested Autopsy, if Needed | 8,427 | 5 | 0 | |||||
| - Death Certificate Was Provided | 8,427 | 5 | 0 | |||||
| - Burial Bills Were Provided, if Needed | 8,427 | 5 | 0 | |||||
| - Dependent Information Was Verified | 8,427 | 5 | 0 | |||||
| Medical Bill Payment Processing | (G)1,310,585 | 114 | 2 | (4) 23% |
|
290 | 39 | 35,999 |
| - Amount Charged Was Input Properly | 1,310,585 | 290 | 1 | 3 | ||||
| - Payee on Bill Was in BPS Correctly | 1,310,585 | 290 | 0 | 0 | ||||
| - Line Items on Bill Were Keyed Correctly | 1,310,585 | 290 | 25 | 13,933 | ||||
| - Dates of Service Were Keyed Correctly | 1,310,585 | 290 | 6 | 0 | ||||
| - Provider Type Was Keyed Correctly | 1,310,585 | 290 | 1 | ($1,200) | ||||
| - Bill Paid to Insurance Company Was Not Paid to
Provider |
1,310,585 | 290 | 1 | 9,016 | ||||
| - Bypass Code Was Properly Used, if Needed | 1,310,585 | 290 | 5 | 14,247 | ||||
| - Patient's Name Was on Bill | 1,310,585 | 114 | 0 | |||||
| - Provider's Name Was on Bill | 1,310,585 | 114 | 0 | |||||
| - Provider's Tax Identification Number Was on Bill | 1,310,585 | 114 | 0 | |||||
| - Dates of Service Were on Bill | 1,310,585 | 114 | 0 | |||||
| - Procedure Code Was on Bill | 1,310,585 | 114 | 0 | |||||
| - Claimant's address agreed to CMF | 1,310,585 | 114 | 0 | |||||
| - Bill Was Maintained After Input Into BPS | 1,310,585 | 114 | 1 | |||||
| - Medical Bill Was on Acceptable Form | 1,310,585 | 114 | 0 | |||||
| - Hospital Bill Contained Adequate Information | 1,310,585 | 114 | 1 | |||||
| - Higher Level of Approval Was Obtained, if Needed | 1,310,585 | 114 | 0 | |||||
| - Medical Services Rendered Agreed to Accepted
Condition |
1,310,585 | 114 | 0 | |||||
| - Bill Was Paid Within Terms of Prompt Payment Act,
if Applicable |
1,310,585 | 114 | 0 | |||||
(A) - The population includes all cases in which injuries occurred in Fiscal Year 1997, which was defined as Strata 16 in our sampling methodology, and all claimants who did not receive compensation payments, but for which medical expenditures were made.NOTE: We are 90% confident, that medical and compensation payments could be overstated by as low as $2.8 million and as high as $18.2 million which is within the materiality limits established by the sampling plan (Section IX). Our sampling plan was designed to project the overall results. The projections that follow for compensation and medical payments are provided for informational purposes only. We are 90% confident that medical payments could be misstated by as low as $4 million but as high as $16 million; and 90% confident that compensation payments could be understated by as low as $4 million, but overstated as high as $6 million.(B) - This population includes all compensation for lost wages benefit payment items within strata 3 through 15, excluding death benefits and scheduled awards.
(C) - This population includes all compensation payments, including compensation for lost wages, schedule awards and death benefits within strata 3 through 16.
(D) - This population includes all compensation payments, including compensation for lost wages, schedule awards and death benefits within strata 3 through 15.
(E) - The population includes all compensation payments for schedule awards within strata 3 through 15.
(F) - The population includes all compensation payments for death benefits within strata 3 through 15.
(G) - The population includes all medical payments withing strata 3 through 15.
(1) - The projected deviation rate could be as low as 10% but as high as 22% (16% +/- 6%). The errors resulted from cases in which the injuries were well established, documented and long-standing. While these errors are procedural problems, they did not impact the eligibility of the claimants. Refer to pages 88 to 90 of this special report for further details on these errors.
(2) - The projected deviation rate could be as low as 1% but as high as 7% (4%, +/- 3%) These errors did not result in payment errors or an incorrect agency being charged. Refer to pages 86 to 87 of this special report for further details on thes errors.
(3) - The projected deviation could be as low as 5% but as high as 17% (11%, +/- 6%). The errors resulted from cases in which the compensation payment rates or amounts had been determined several years prior. These cases were scheduled for review under the Quality Case Management section. Additional testing was performed on high dollar and multiple claim compensation payments. Refer to pages 19 to 95 of this special report for further details on these errors.
(4) - The projected deviation could be as low as 15% but as high as 41% (23%, +/-8%). Additional testwork was performed on potential duplicate payments to determine the extent to which errors could occur due to control weaknesses. The otential duplicate payment testwork indicateed that if all items identified as potential duplicate payments were, in fact, duplicate paymens the erorrs resulting would not eceed the materiality limits established by the sampling plan (Secton IX). Refer to pages 96 to 100 of this special report for further details on these errors.
|
Non-Statistical Test |
Issue |
Number Tested |
Number of Errors | Dollar Amount of Errors |
| Duplicate Payments | Bypass Codes Not Used Properly | 945 | 189 | $362,026 |
| Procedure Codes Not Input Properly | 945 | 28 | 43,328 | |
| SECOP and IMPAR Errors | 945 | 23 | 11,501 | |
| Modifiers Not Input | 945 | 9 | 10,716 | |
| Keying Error of Line Item Charges | 945 | 1 | 2,654 | |
| Keying Error of Service Zip Code | 945 | 1 | 127 | |
| Keying Error of Dates of Service | 945 | 7 | 0 | |
| Fee Schedule Appeal Error | 945 | 2 | 5,440 | |
| Provider Type Incorrect | 945 | 1 | 4 | |
| Provider Error | 945 | 4 | 15,636 | |
| Multiple Claims | Incorrect Social Security Number in ACPS | 262 | 4 | 0 |
| Overlapping Compensation | 262 | 2 | 1,753 | |
| High Dollar1 | Base Pay Rate Computed Incorrectly | 45 | 4 | (23,604) |
| Compensation Percentage Incorrect | 45 | 1 | (700) | |
| Overlapping Compensation | 45 | 1 | 3,323 | |
| Keying Error of Dollar Amount on Bill | 13 | 1 | 7,572 | |
| Convenience Item Paid on Hospital Bill | 13 | 1 | 51 | |
| Gross Override2 | Base Pay Rate Computed Incorrectly | 8 | 1 | (7,746) |
| Attendant Allowance Overpaid | 8 | 1 | 135 | |
| Incorrect Number of Hours | 8 | 1 | 17 | |
| CPI Not Applied | 8 | 2 | (30) | |
| Third Party Cases | Case Status Incorrect in CMF | 33 | 7 | $0 |
| Completed CA-1045 Not in Case File3 | 33 | 10 | 0 | |
| Case Not Transferred to DCE | 33 | 2 | 0 | |
| No CA-1108 or CA-1109 in Case File | 33 | 2 | 0 | |
| No CA-1123 in Case File | 33 | 4 | 0 | |
| No CA-160 or CA-162 in Case File | 33 | 2 | 0 | |
| TOTAL | 1,306 | 311 | $432,203 |
1 Benefit Payments over $100,000 paid to, or on behalf of, one claimant during the period of October 1, 1996 to May 31, 1997.2 Compensation benefit payments paid to, or on behalf of, a claimant using the gross override function instead of the ACPS calculation program.
3 Or a second CA-1045 was not sent to the claimant timely after there was no response to the first CA-1045.
Everett B. Orr
Assistant Inspector General for Audit
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Jackie R. Crawford
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